Management Accounting

Question 1

Fixed cost

Answer 1

Cost which remains the same regardless of a change in the level of activity, over a defined period of time

Question 2

Variable cost

Answer 2

Cost varies as the level of activity changes, over a defined period of time

Question 3

Product cost

Answer 3

Associated with goods or services purchased (or produced) for sale to customers: cost of sales

Question 4

Period cost

Answer 4

Treated as an expense in the period they are incurred

Question 5

Absorption costing

Answer 5

All production costs are absorbed into products and closing inventory is measured at total production cost

Question 6

Marginal costing

Answer 6

Only variable costs of production are allocated to products and closing inventory is measured at variable cost of production. Fixed production costs are included in cost of sales of the period in which they are incurred.

Question 7

Semi-variable cost

Answer 7

Fixed + variable element

Question 8

Semi-fixed (step) cost

Answer 8

Fixed cost increases in steps after a certain threshold is crossed

Question 9

Indirect method (operating cashflow)

Answer 9

1. Start with profit before interest and tax
2. Adjust for items which have impacted profit but not cash
3. Account for changes in working capital
4. Account for cash used to pay interest and tax

Question 10

Direct method (operating cashflow)

Answer 10

Cash receipts from customers (receivables Y1 + sales - receivables Y2)
MINUS
Cash paid to suppliers (payables Y1 + purchases Y2 - payables Y2)
MINUS
Cash paid for selling and admin expenses
MINUS
Cash paid for interest and tax (Y1 payable + Y2 expense - Y2 payable)

Question 11

Contribution per unit

Answer 11

The amount contributed per sale to fixed costs and profit.

Contribution per unit = selling price - total variable costs per unit

Question 12

Break even

Answer 12

The point of activity where total sales and total costs are equal so that there is neither profit nor loss

Question 13

Margin of safety

Answer 13

The difference between the break even level of activity and the normal level of activity

Question 14

Contribution to sales price ratio

Answer 14

Contribution to sales price ratio = (contribution per unit / selling price per unit) x 100

Question 15

Break even (using contribution to sales price ratio)

Answer 15

Fixed costs / contribution to sales price ratio

Question 16

Variable cost per unit

Answer 16

Total cost (bigger) - total cost (smaller) = x
Total units (bigger) - total units (smaller) = y
x / y = variable cost per unit

Question 17

Manufacturing absorption rate

Answer 17

Expected fixed manufacturing overhead / expected production